Current USA Dollar Value and Parallel Dollar Price: Live Updates for August 18, 2020, Minute by Minute
In the economic landscape of Argentina, the expansion of credit has been a significant factor in shaping the country's financial trajectory. This expansion, which began after the approval of the IMF program, has resulted in a moderate credit growth of about 15% in real terms, with a balance between peso- and foreign currency (FX)-denominated lending [1].
From a monetary policy perspective, the Central Bank of Argentina (BCRA) has been proactive in addressing liquidity conditions and inflation concerns. High real interest rates have been implemented to moderate credit growth and inflation, with the aim of maintaining monetary stability under a flexible exchange rate regime [1][2]. This approach, however, may slow economic growth, risking stagnation or recession, as lending and spending are discouraged by elevated costs of credit [2].
Interest rates have been raised significantly to attract peso liquidity and slow down economic demand, with the aim of containing inflationary pressures. However, this strategy carries the risk of economic stagnation [2].
Regarding foreign exchange rates, Argentina has moved towards a more flexible exchange rate regime with declining inflation. The Central Bank has eased import and FX restrictions to improve market functioning, though the peso remains vulnerable to volatility due to historical currency crises and the external balance shifting from a surplus to a deficit [1][5].
On August 18, the official dollar quotation for sale started at $1.310, while the blue dollar was trading at $1,320 in the informal market. The dollar retail in banks closed at $1,310 after a $15 drop. These movements reflect the ongoing noise in the peso market, which has been ongoing for several weeks, starting with the dismantling of LEFI [3].
To address these challenges, the Central Bank has announced more controls on banks and a strong tightening of reserves to avoid the impact of almost six trillion pesos in excess on the exchange rate. Starting from today, banks are required to deposit 50% of the sight deposits and savings boxes they receive at the Central BCRA [4]. Of the total deposit required, 40 points will be in cash and 10 points can be integrated with bonds.
In conclusion, the effect of credit expansion is nuanced. It supports economic activity but requires tight monetary policy via high interest rates to control inflation and exchange rate pressures, which may slow growth [1][2][5]. The country has a consolidated public account as a necessary condition to close the tap on monetary financing of the deficit [6].
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[1] Source: Central Bank of Argentina (BCRA) [2] Source: International Monetary Fund (IMF) [3] Source: Bloomberg [4] Source: BCRA [5] Source: World Bank [6] Source: Ministry of Economy [7] Source: Clarín
- In spite of the credit expansion supporting economic activity, the country's monetary authorities have been implementing high interest rates to manage inflation and exchange rate pressures, effectively slowing down growth and raising the risk of economic stagnation.
- To mitigate excess liquidity in the exchange rate, the Central Bank has imposed stricter controls on banks and increased reserve requirements, aiming to avoid further impacts on the exchange rate.
